Canadian Telecom Oligopoly Provides Sustainable Dividend Growth

The Canadian wireless market is dominated by the Big Three: BCE, Inc. (NYSE:BCE), Rogers Communications, Inc. (NYSE:RCI), and Telus (NYSE:TU) controlling approximately 91% of the wireless market, with various other regional players filling in the rest.

For consumers, Canada is ranked among the 10 most expensive countries for wireless services. The Canadian conservative government has been trying to balance encouragement of competition and having a protectionist viewpoint roadblocking foreign ownership of local companies or downright blocking some from entering the market. Wind Mobile, a relatively new small player, has had a troubled past with foreign ownership and national security concerns regarding deals with Huawei. Earlier in 2013, Verizon Communications (NYSE:VZ) and AT&T (NYSE:T) decided not to enter the Canadian market after mulling it for months.

In the upcoming 2014 wireless spectrum auction, all the said roadblocks with added lobbying from the Big Three for good measure, has resulted in no new foreign telecom carriers planning on entering the market. While this may be bad news for the consumers, the status quo results in favorable conditions for the Big Three.

BCE, Inc.

BCE, Inc. is Canada's largest communications company providing communication solutions to residential, business and wholesale customers. The company was founded in 1880 and is headquartered in Verdun, Canada.

Business Segments

BCE Inc. operates in four segments:

Bell Wireline - the largest segment of BCE Inc. revenue-wise; provides local, long distance and data services to residential and business customers.

Revenue Summary

(click to enlarge)

BCE FY2012 Revenue Summary

Recent Acquisitions

Acquisition of Astral Media: BCE extended its dominance in the Canadian media after already owning media brands such as CTV, TSN, RDS and various radio stations. The $3.4B acquisition of Astral Media Inc. came with some pains from the Canadian Radio-television and Telecommunications Commission (CRTC) - a deal first blocked in late 2012, but later approved in mid 2013 This acquisition gives BCE an edge against Quebecor, BCE's biggest rival in Quebec (population of 8M), which controls 31% of the French language market. BCE's Q3 2013 results dampened due to the hefty regulatory and acquisition-related charges, with profits down 35% from same period last year. However, the acquisition provides BCE with rich content and media sources by taking control of 80 radio stations across the country, numerous French and English speciality television channels, and a number of billboard advertising assets. The deal was approved by CRTC on condition that BCE sell off 10 of the radio stations as well as 11 specialty TV channels - for which BCE already has a tentative $400.6M offer from Corus Entertainment.

Dividend History

BCE Inc is a component of the S&P/TSX 60 index and has been paying dividends since 1949. BCE is a stable company that has provided stockholders with constant flow of dividends and sustainable dividend growth. The company has a payout policy of paying between 65% and 75% of adjusted EPS. The company has raised dividends five years in a row with a five-year dividend growth rate of 25.6%. The stock yields approximately 5%. BCE usually increases its dividends in March.

What's Next for BCE?

The Q3 2013 results show an improving mix of revenue growth from the Astral acquisition, wireless consumer growth and retention and Bell Fibe growth.

Rogers Communications, Inc.

Rogers is a diversified communications and media company. It is Canada's largest provider of wireless voice and data communications services and also one of the leading providers of cable television, high-speed internet and telephony services. The company was founded in 1920 and headquartered in Toronto, Canada.

Business Segments

Rogers operates in three business segments:

Rogers Wireless - Rogers is Canada's largest wireless voice and data communications services provider with over 9 million customers. The company operates under the Rogers Wireless, Fido and Chatr brands.

Rogers Media - operates radio and television broadcasting, sports entertainment, publishing and digital media properties. The radio group operates 55 radio stations across Canada; the publishing group produces over 50 consumer and trade magazines. Rogers Media also owns the Toronto Blue Jays Baseball Club, Rogers Centre and a 37.5% stake in MLSE.

Rogers-NHL Deal: Rogers secured a 12-year $5.2B broadcast and multimedia deal in Canada with the National Hockey League (NHL). The deal will provide Rogers with national rights to all NHL games, including playoffs and Stanley Cup finals. The agreement also guarantees that there will be no further regionalization of games or local blackouts while giving Rogers three exclusive windows to broadcast any game involving a Canadian team on Wednesday, Saturday and Sunday nights.

Dividend History

Rogers Communications Inc is a component of the S&P/TSX 60 index and has been paying dividends since 2000. Rogers is a stable company that has provided stockholders with constant flow of dividends and sustainable dividend growth. The company has raised dividends nine years in a row with a five-year dividend growth rate of 14.7%. The stock yields approximately 3.75%. Rogers usually increases its dividends in March.

Telus Corporation

Telus Corporation is the smallest of the Big Three Canadian telecom providers and only operates as a communications company. The company was founded in 1993 and headquartered in Vancouver, Canada.

Business Segments

Telus operates in two business segments:

Wireless - involves voice, data and equipment sales. Telus wireless has of 7.7 million subscribers. Telus Wireless operates under the brand names of Telus, Koodo and Public Mobile.

Revenue Summary

(click to enlarge)

Telus FY2012 Revenue Summary

Recent Acquisitions

Public Mobile: Telus has been on the hunt to acquire some of the new entrants in the Canadian wireless space. In the fall of 2013, the CRTC approved Telus' decision to acquire Public Mobile. With this acquisition, Telus gains the 280K subscribers that Public Mobile had.

(Failed) Mobilicity: Telus has also been trying to acquire Mobilcity for the past few months, but the move has been blocked by CRTC.

Dividend History

Telus is a component of the S&P/TSX 60 index and has been paying dividends since 1999. Telus is a stable company that has provided stockholders with constant flow of dividends and sustainable dividend growth. The company is dividend grower with a five-year dividend growth rate of 9.08%. The stock yields approximately 4%. Telus increases its dividends twice a year - normally in May and November.

Risks

Although the Canadian telecom sector is dominated by the Big Three and provides stockholders with constantly increasing revenue as the dividends continue to grow, the government could dampen the mood with regulatory moves. The government recognizes that Canadians pay some of the highest fees for communication services and wants to encourage competition. If new entrants make it to Canada, this could spell disaster for the incumbents. For now however, corporations from across the world including Verizon, AT&T, Vodafone, etc. have decided to stay out of the Canadian market and the pie continues to get divided only three ways.

Disclosure: I am long BCE. My full list of holdings is available here. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We only use your contact details to reply to your request for more information.We do not sell the personal contact data you submit to anyone else.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you shortly for a conversation.

Thank you for your interest in Seeking Alpha PRO

Our PRO subscription service was created for fund managers, and the cost of the product is
prohibitive for most individual investors.
PRO Alerts is our flagship product for individual investors who want to be faster
and smarter about their stocks. To learn more about it, click here.
If you are an investment professional with over $1M AUM and received this message
in error, click here and you will be contacted shortly.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you when we have an individual investor product ready!